This Week in Startups - E1044: Ask Jason! Starting a company in an economic crisis, bringing on & compensating startup advisors, scaling diligence as an angel investor, Jason’s thoughts on solving the unemployment surge & more!

Episode Date: April 10, 2020

0:01 Jason previews today's Ask Jason & drops some hints about the Super Secret TWiST Slack room 2:29 Aaron asks how investors view no-code startups 6:33 Andrii asks if an economic crisis is a good time to start a company 9:52 Jesse asks if he should start trying to raise a round of funding now, or wait until this crisis passes 14:48 Juan asks how he can leverage his first committed angel investor to attract more 19:11 Marcel asks how he can use a "startup mentality" to effectively run his small private school 23:28 Matt asks how to bring on advisors and how he should compensate them 29:46 Mike asks what % of revenue a company should spend on brand & marketing 35:27 Peter asks how much diligence is appropriate for an Angel Investor writing small checks ($5K & under) 41:52 Talha asks what COVID's economic impact will be on Cloud Kitchens, UberEats, DoorDash, etc. 47:56 Ryan asks for Jason's thoughts on solving the unemployment issues due to COVID-19

Hey everybody, hey everybody. Thanks for joining this week in startups. It's an all-asked Jason. And these questions are taken exclusively from the super secret, top secret, brand new, this week in startup Slack. This Slack is so secret that you can only get into it by emailing Nick NICK at launch.co, telling them what you love about the podcast, and then he will let you in. But you have to tell him what you love, hate, and give him some suggestions on making it the podcast better. And then he'll send you the secret link. 3,200 people are in there talking about startups.

And we asked them for questions. And this is the best set of questions I've ever answered in this format before. And they include how do investors look at no-code startups? If you don't know what a no-code startup is, you're going to want to really hear about that. And is an economic crisis a good time to start a company yes or no? I go into the details. And how do you compensate startup advisors? And why do you even need startup advisors?

I'm going to tell you about the hack of having startup advisors and how much you should pay them. and for how long. Additionally, an angel investor asked us how much diligence they should do in your startup if they're only putting in $5,000. And we get into all the details of what due diligence is as well as my personal thoughts on the unemployment issues that America is facing post the COVID-Vad virus crisis. Stick with us. It's an amazing episode. This week in startups is brought to you by Front. transform your corporate email into multiplayer mode so your team can increase customer experience and take action faster. Take 20% off your first year today by using the code Twist at signup and visit frontapp.com slash twist for more information.

Clavio helps brands build relationships across any distance. Delivering email marketing moments your customers will appreciate, remember, and share in good times and bad. Visit clavio.com slash twist to schedule a demo. That's K-L-A-V-I-O dot com slash twist and notion. Looking to stay organized and in sync with your team, try Notion. It brings all your notes, docs, projects, and more together in one place, all fully customizable. Get 50% off Notion's team plan when you sign up at Notion.com twist. Okay, our first question is from Aaron. He wants to know.

Hey Jason. This is Aaron from Arizona, and I'm a proud member of the new Twist Slack group. I wanted to get your thoughts on a startup built on a no-code platform. At Patter, we've decided to build our entire front end in bubble, but still leverage our existing database and APIs on AWS. This transition has allowed us to iterate on feature sets way faster and has actually eliminated the gap between product and dev. But with this in mind, how would investors view this model. Is this viable at the pre-seed or the seed stage? And then at what point would you advise a team to begin transitioning to their own code base? We'd love to hear your thoughts. Thanks. Okay, fantastic question, Aaron. So your question is how do investors look at no-code startups?

Let's start by defining what no-code is. There's a bunch of websites out there from Slack, Zapier, air table and of course bubble and web flow. And what all these services, Squarespace let you do is build websites and then build the glue and the logic and the functionality behind a website. So many of the things that would normally take a developer team might be able to be done with no code software. No code software also sometimes referred to as visual software creation. Putting that aside, you can look it up where you can go join inside.com slash no code.

have our own newsletter about it. It's a new trend. Most investors are not going to know that you built it on no code. And when they do find out that you didn't have to hire a developer to make a website that then generated 10 or 50K a month in revenue, they're going to just be thrilled with your efficiency. As investors, we love, love when we can give somebody a dollar and they get $20 in value from it. We hate when we give somebody a dollar and they get five cents worth the value out of it. So sometimes we'll give people money as an investor and they just give it to a development shop. The money goes away and they have a product that's now static. It's not changing and they don't learn anything. What's great about the no code movement is you can learn and you

can build things. Most workflow can be done now with Zapier, Squarespace, Slack, some combination of these things. So it's pretty awesome. Now to your second question, which is how do you transition to your own code base, etc. Well, you know, there's some argument that you may never need to do that depending on the business. And so you're going to have to look at each business and say, at what point is no code slowing us down? And are we making so much money that we need to build things that are more sophisticated.

So, for example, you could build a version, I'm sure, of Postmates or Uber Eats on no code where people just went to a simple website, they typed in what they wanted, and it was delivered. But then you might want to do some very sophisticated things that no code can't do yet, like having maps and showing the driver on the map. Maybe you can do that in no code. Maybe you can. I'm not sure. So you might need to also go to your own code base when you get to 10,000 or 100,000 users and the no code stuff is too slow or not as fast as it could be. It may not be slow, but it might not be lightning fast versus your competitors.

So you'll figure that out as you go. But I think no code is going to create a whole new group of startups. and founders who are complaining, I can't find a technical co-founder, I can't get a developer. Well, number one, you failed the test. Like, if you can't even convince one developer to join your team,

you're not going to make it as an entrepreneur. Second, if you don't have the wherewithal to learn these no-code tools and build an MVP and get it in market, well, then you failed the number one, the second test, which is, are you motivated enough to even build a prototype? Right?

So a lot of people who talk the talk, and they're like, I want to build a startup, and I'm going to use these special buzzwords, and I'm going to disintermediate, blah, blah, blah, and they don't even want to spend 100 hours or a thousand hours becoming a developer or a no-code developer or a product designer. Guess what?

That's like me wanting to play with Mark Knopfler and being Dire Straits, and I don't want to play a guitar and take guitar lessons. It's like, it's not going to happen. So great question, Aaron. Let's take another question. Okay, our next question is from Andre. He asks, Hello, my name is Andri, and I'm from Copenhagen, Denmark. And I'm also a member of Twist Slack. So right now in this crisis, is it a good time to actually a startup and why?

Great question, Andre and love Copenhagen. So many great memories there of getting the Schmurberg and going to Tivoli Gardens and Christiana. Christiana Sin, I don't know what's called. The Special Park, we can get special cookies. Yeah, lots of good memories. Anyway, is an economic crisis a good time? to start a company, heck yes, heck yes. And it's a great time to be an investor in companies. As I always tell people, fortunes are built in the down market. They're collected in the upmarket.

So a down market is great for a number of reasons. The first reason is there's not a lot of competition. And that means competition for customers, competition for funding dollars and competition for employees and talent. When you go to market in a peak market like we've had in Silicon Valley last couple of years and you want to hire a developer, they might have 10 competing offers. And not just from Google and Facebook, they might have it from the next tier of companies, the Airbnbs, the slacks and the Uber's.

And then they'll have also offers from the mid-tier companies, maybe ones with $100 million valuations. And then you've got people who raised a Series A and who jumped the fence and they want to pay somebody a huge salary. So we've seen that competition. Then we see people moving from company to company. What will happen during a crisis like this is people will value security

and they'll be less likely to, jump from company to company. And when you go buy ads on Facebook or Google, maybe you won't have as many free-flowing dollars there. So your customer acquisition costs, which might have been $150, suddenly goes down to $50. Well, if your profit margin on your product is $75, you were basically unsustainable in terms of using those ecosystems to grow, and now you're suddenly profitable. Well, that's what's going to happen. And so that is a wonderful thing. Now, it might be psychologically hard if you're weak, if you don't have fortitude, if you're not self-possessed, if you're soft, you might be, you know, too depressed that things aren't growing fast enough, or it's hard,

it's hard to raise money. You know, it's always hard to raise money. It's hard in an upmarket to raise money because there's so much goddamn noise, and you might have 20 competitors going after the same prize, and it's just hard to get on an investor's radar. And it might be hard to raise money in a down market because people are investing less, and there's less investors. So, you know, there's, but I would say overall, the down market is the absolute best time.

And there's never a bad time to start a great company. There's never a bad time to start a great company. I always say that twice because people who are concerned or overly concerned with the timing of the market and market conditions, which I'm not saying you are. You're just fascinated with, I think, maybe the arc of history here in my experience with it, but you can't time these things. but you can make a great product

and you can solve problems for individuals and customers and companies anytime. So don't overestimate the market. Just understand the market you're going into and the dynamics of it. Great question. Okay, our next question is from Jesse. He asks.

Hey, Jason, love the show and really appreciate everything you do for the startup community. My name is Jesse, and I'm the founder of easyup.com, a BDB marketplace that empowers salespeople to sell cars from any dealership. just like real estate agents do with houses.

We started about nine months ago. We've been growing at more than 90% month over a month for the last seven months. And recently we did $7,700 in net monthly revenue. We've seen some people saying that we should wait to raise money. But with roughly 100,000 salespeople laid off in the last few weeks, we really want to help as many members support their families as possible. Would you recommend raising around now or continuing to grow organically and raising down the road? Thanks so much for your help.

and look forward to your answer. So it's a great question, Jesse. And when we talk about now, this is being recorded in April of 2020 in the middle of the COVID crisis in case you're watching it five or 10 years later. And I think a lot of VCs and investors are very busy doing triage with their existing investments. So now is a terrible time to get on the radar of investors you don't know because they're probably very busy. And that would be the argument that I'm seeing with a lot of investors. That being said, some investors, if they don't have a huge portfolio,

are probably sitting there at home locked up with their headset and Zoom, and they might want to take a quick 10 or 20-minute call. So if you frame it as such, hey, I've got a startup. We grew 25% on average the last three months, and this month it looks like we're going to grow 40%. So you're leading with that strength,

the strongest part of your business, you're showing you're a high-growth company, and you say, hey, I would love to just jump on the phone for 15 minutes and run you through this 10-side deck and answer any questions. I've now set the context of, hey, this is going to be very lightweight and easy for you and why you should meet with us now. So the timing is important. And I know you're the right person because you've invested in these companies. And I'm so confident I can do this in 10, 20 minutes on the phone or a quick Zoom. And I like those kind of emails when I get them.

So if you want to try to raise, I don't think it's a bad idea to get on some people's radar if you do very tight. targeted emails where you're emailing a very specific investor. You've read their blog. You follow them on social media. You know where their portfolios at, how big their fund is. You've really researched that person and you've customized that pitch to them. And you know they invest in Seed Stage. They invest in enterprise computing.

And they invested in these two or three other companies, which are similar to but not competitive with yours. If you've done that research, sure. Why not fire off an email or 10 and see what happens and run a, I'll call a mini process. Just getting on the radar of 10 investors with the same message and see if they even open the email. See if they respond and follow up with each one two times. And you can do that over time. And now at least you've got them in the top of your pipeline. So sure, why not give it a shot? And if you, if it's too soon, they're going to tell you and they're going to tell you just by not

taking the meeting. Okay, great question. You crazy about efficiency like I am well. If you're listening to this week in startups, you are because you're running your startup and you're trying to not drown in all this email and messages, SMS. You don't want to leave customers waiting. You don't want to manage all of these conversations in single player mode. No, you want your entire team to be involved in these conversations in one place. And that's called the Universal Inbox. And that is Front. When you think Universal Inbox, I want you to think about Front. You can put out the fire with Front. That's right. It's a better way to manage all of your work email. Front transforms your corporate emails. into a multiplayer game so your team can organize communication and take action faster. Front is a multi-channel inbox with inline at mentions, message assignments, and automation. You're going to respond faster to critical messages, and you're going to give that personalized customer support experience that you've always wanted to give while not losing any important conversations.

Our portfolio company look as a talent marketplace for the fashion entertainment industries and their CEO, Zach, runs his entire company off front. He showed this to me. I was really amazed. It's really a lightweight way to do it. By using Front, they estimate they've eliminated over 3,500 internal emails every month. He's also able to better manage his team member's workload. So he can jump in if somebody falls behind, somebody's out sick, somebody goes out vacation. Hey.